- According to a recent GOBankingRates study, state tax rates vary widely state to state.
- In fact, the tax bills varies by thousands of dollars. Florida residents pay no income tax, for instance, while the average Hawaii resident pays a little over $1,700.
- Jim Wang, creator of Wallet Hacks, considered moving to a state with lower taxes but ultimately decided against it — here’s why.
I’ve been a full-time blogger and entrepreneur for a little over 10 years. Fortunately, when you make your living online, you can live anywhere. However, I originally came to Maryland for the same reasons many people relocate — a job. I graduated college and started working at Northrop Grumman. They have a huge presence near the Baltimore/Washington International Thurgood Marshall Airport.
Maryland is a great state to live in. We’ve enjoyed our time here immensely and made lots of friends. It also helps that my in-laws are an hour away in northern Virginia, and the median income in Maryland is quite high. According to GOBankingRates, the median income is $80,776, likely because of its proximity to the seat of the federal government.
But our taxes are high too. We pay a 4.75 percent state income tax. We pay a 3.2 percent county tax. And our property taxes are 1.183 percent. GOBankingRates estimates that the amount of tax we pay, as a proportion of income, is 23.71 percent, once you factor in all taxes (including gas taxes and sales tax). That ranks the 18th highest out of all states.
For about three months, I seriously considered moving to another state, like Florida or Texas, neither of which have a state income tax. According to GOBankingRates’ research, I should’ve also looked at Delaware (17.15 percent), Montana (16.60 percent) or West Virginia (18.52 percent), as they have the lowest taxes as a proportion of median income.
But, in the end, we decided not to move at all. Here’s why.
The Numbers Made Sense
The only state I seriously considered was Florida. With no state income tax, it seemed like an easy way to save 5 to 8 percent of our income, since our Maryland state and county taxes are so high (the sales tax and property tax rates were similar). Home prices are lower in Florida too. The median home price in Florida is around $240,000, compared to nearly $300,000 in Maryland.
All of the numbers made sense. Financially, it would be advantageous. Outside of gas taxes, there wasn’t a single figure that was significantly higher. And, for the average household budget, gas is only a small part of the equation anyway (especially ours since I work from home).
I do recognize I am a rare case with this move, being that I’m not retiring. For many folks, it doesn’t make sense to move because the job opportunities in Florida are not as plentiful as they are in Maryland. The median household income in Maryland is over $80,000 a year. The median household income in Florida is just over $52,000. When you stand to earn an extra $28,000 a year, a few percentage points in taxes don’t register.
Lowering Your Tax Bill: 10 Tax Loopholes That Could Save You Thousands
Moving Is a Huge Hassle
I’ve moved several times and I’ve hated it each time. I hate packing. I hate unpacking. I hate moving the boxes. I hate breaking my stuff, and I hate losing my stuff. It’s one thing if you have to move, like if you accept a new job in a new place. Or if you need more space or decide you want to downsize, you move. But to make the change solely on the basis of tax considerations seems a little crazy.
When you relocate, you have to do so much to prepare for it. If you find a place a mile down the road, it’s already a hassle. Now imagine all the work involved in moving to another state. You’ll need to sell — and potentially buy — a house. You’ll need to register the kids for school, set up childcare, understand how everything works. It’s a lot.
It’s not cheap to make that change, either. It’ll cost you a few thousand to just move, and it’ll cost you even more to sell a house and buy a new one, assuming you’re not underwater on your home. The promise of a lower tax burden later won’t lessen the cost now. It’s a difficult trade, especially when there are so many other factors involved.
There’s More to Life Than Taxes
Over the years, we’ve built a social network of close friends and neighbors. These are folks we spend weekends with. We go on trips together. We raise our kids together and help each other out when needed. Moving to a new state means completely rebuilding that network from scratch.
We’ve seen this scene play out multiple times as we’ve had friends move away. It’s heart-wrenching to see kids say goodbye because they have no filter. They don’t know when they will see their friends again, if ever. Regular weekend dinners and get-togethers also come to an end, and parties are a little less crowded, in a bad way.
Again, if you take a new job and have to move, you move. But to save a few dollars on taxes? Count me out.
Yet, after all my research, I do know one thing: When it comes time to finally retire, Florida looks like a pretty good place to do it!
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